Question

Keesha Co. borrows $200,000 cash on November 1, 2018, by signing a 90-day, 9% note with a face value of $200,000. 1. On what date does this note mature? 2. & 3. What is the amount of interest expense in 2018 and 2019 from this note? 4. Prepare journal entries to record (a) issuance of the note, (b) accrual of interest at the end of 2018, and (c) payment of the note at maturity. (Assume no reversing entries are made.)

Answer 1

1. Note mature on 30/01/2019

From 2nd november to 30th january = 90 days

2. Interest on note = 200,000 x 9% = 18,000 × 90/360 = 4,500

Interest in 2018 = 4,500 x 60/90 = 3,000

Interest in 2019 = 4,500 x 30/90 = 1,500

4.

Date	Account	Debit	Credit
a)	Cash	200,000
	Note payable		200,000
b)	interest expense	3,000
	Interest payable		3,000
c)	note payable	200,000
	Interest expense	1,500
	Cash		201,500